Preparation of a complete master budget
[The following information applies to the questions displayed below.]
Near the end of 2015, the management of Nygaard Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2015.
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Estimated Balance Sheet
December 31, 2015
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Assets
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Liabilities and Equity
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Cash
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$36,000
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Accounts payable
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$365,000
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Accounts receivable
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520,000
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Bank loan payable
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15,000
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Inventory
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135,000
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Taxes payable (due 3/15/2012)
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92,000
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Total current assets
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691,000
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Total liabilities
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$472,000
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Equipment
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$542,000
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Common stock
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472,000
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Less accumulated depreciation
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67,750
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474,250
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Retained earnings
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221,250
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Total stockholders' equity
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693,250
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Total assets
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$1,165,250
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Total liabilities and equity
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$1,165,250
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To prepare a master budget for January, February, and March of 2016, management gathers the following information.
a. Nygaard Sports' single product is purchased for $30 per unit and resold for $56 per unit. The expected inventory level of 4,500 units on December 31, 2015, is more than management's desired level for 2016, which is 20% of the next month's expected sales (in units). Expected sales are: January, 7,500 units; February, 9,000 units; March, 10,750 units; and April, 11,000 units.
b. Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 61% is collected in the first month after the month of sale and 39% in the second month after the month of sale. For the December 31, 2015, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 is collected in February.
c. Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2015, accounts payable balance, $80,000 is paid in January and the remaining $285,000 is paid in February.
d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $78,000 per year.
e. General and administrative salaries are $132,000 per year. Maintenance expense equals $2,100 per month and is paid in cash.
f. Equipment reported in the December 31, 2015, balance sheet was purchased in January 2015. It is being depreciated over eight years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $37,000; February, $95,000; and March, $28,000. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full month's depreciation is taken for the month in which equipment is purchased.
g. The company plans to acquire land at the end of March at a cost of $175,000, which will be paid with cash on the last day of the month.
h. Nygaard Sports has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $30,250 in each month.
i. The income tax rate for the company is 39%. Income taxes on the first quarter's income will not be paid until April 15.
Prepare a master budget for each of the first three months of 2016; include the following component budgets (show supporting calculations as needed, and round amounts to the nearest dollar): (Round your answers to the nearest dollar amount. Amounts in parentheses do not require a minus sign in front of them. Omit the "tiny_mce_markerquot; & "%" signs in your response. )
Monthly sales budgets (showing both budgeted unit sales and dollar sales).
Monthly merchandise purchases budgets.
Monthly selling expense budgets
Monthly general and administrative expense budgets
Monthly capital expenditures budgets.
Budgeted income statement for the entire first quarter (not for each month).
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Budgeted Income Statement
For Three Months Ended March 31, 2016
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$
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Cost of goods sold
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Operating expenses
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$
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Income before taxes
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Income taxes
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$
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Budgeted balance sheet as of March 31, 2016. (Round your answers to the nearest dollar amount. Leave no cells blank - be certain to enter "0" wherever required. Be sure to list the assets in order of their liquidity. Omit the "tiny_mce_markerquot; sign in your response.)
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Budgeted Balance Sheet
March 31, 2016
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Assets
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Liabilities
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$
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$
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Total Current Assets
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Total Liabilities
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$
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Equipment
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$
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Less accum. Depreciation
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Total stockholders' equity
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Total assets
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$
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Total Liabilities & Equity
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$
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